Healthy Money

Why You Should Contribute to Your 2019 HSA in 2020

Have some extra money and thinking about putting it towards your health savings account (HSA) contributions in 2020? Not so fast! Here’s why.
by Sarah Li Cain February 21, 2020

When it comes to health savings account (HSA) contributions… there’s quite a bit to talk about! Although it may sound strange, putting money from this year toward your HSA contribution limit from last year can seriously benefit your wallet. No lie! This hack is like how retirement accounts work in that you can contribute towards 2019 for tax purposes, even though we’re well into 2020.

Still following? Good.

No matter how you slice it, whether you’re contributing to your HSA for this year or last, you’re taking the right step with your finances. However, contributing to the previous year has some specific perks…

Save on Taxes

A major reason to have an HSA is for its incredible tax benefits. As in its epic triple-tax-advantage: withdrawals for qualified medical expenses are tax-free, contributions to your HSA lower your taxable income, and any interest you earn in your account grows tax-free.

The contribution limits for 2019 are $3,500 for individuals and $7,000 for a family. Contributions are based on tax year so you usually have until April 15th to contribute towards 2019. Always check with the IRS for the specific year’s date.

Now… let’s say you added in a side hustle in 2019 and it did really well, which also means you’ll need to pay more in taxes. Well, since your HSA is tax-free and any contribution you make to it (except direct, pre-tax paycheck deductions) is tax-deductible, making a contribution before the tax deadline helps you maximize your tax benefits, which is to say: you’re paying less in overall taxes. Score.

Max It Out, Watch Your $ Grow

The whole point of an HSA is to make your hard-earned dollars work for you, as well as to help you save on medical costs (duh). So why not contribute as much as you can and max out your account out each year? 

Well, sometimes circumstances get in the way, and that cash needs to work for you in the immediate. But! If you do have some extra cash, say, from that side-hustle, or maybe your rich aunt gave you a nice chunk of change for your birthday, think about socking those dollars away instead of spending them on a weekend getaway, or that new TV you’ve been eyeing. Consider how nice it’ll be to see that money grow by the time you’re ready to retire…or when you need it for an unforeseen medical expense.

And always remember: time is one of your best advantages to investing, so it’s smart to think of contributing to your HSA as part of your overall retirement strategy.

If You’re No Longer Eligible for Contributions in 2020

Perhaps you changed health insurance plans and you’re no longer HSA-eligible. Or you switched jobs and they don’t offer an HSA-eligible health plan. Whatever the case may be, you may still be able to contribute to your HSA assuming you were eligible for 2019. 

To make this happen, first, figure out how much you can contribute (since your limit is prorated based on your eligibility in 2019). So if you were only HSA-eligible for 8 months out of the year, you’ll only be allowed to contribute the equivalent of that amount. 

Just Do It

The moral of the story? Just do it. However you decide to contribute towards your HSA, you’re making a smart move. Not only because you’ll be reaping your account’s triple-tax advantage, but also for your future!

Take the first step
in taking care of you.